What I’m Teaching my Son about Money

I’m not going to lie to you – being wealthy is a lot of fun.

And I’m not just talking about novelty fun that you get from driving around in a fancy car. True wealth is more of a big picture thing – freedom from negative stress and a higher confidence about how great life is. It hits you like a pack of wild butterflies every morning when you wake up. Holy shit, here comes another great day.

I want to pass this gift along to my son if at all possible, because it is truly a great way to live. After all, as parents we are really in the business of producing the happiest and most capable adults we can, given the constraints of the real world. If my boy eventually ends up as happy with his lot in life as his parents are, we will be more than satisfied.

Surely every parent wants the same thing – to pass on their happiness if life is good, or if not, to give their kids a better life than they had. So they do their best to dish out financial advice, and to model good behavior for their offspring to emulate. Unfortunately, the results are not always good.

In a country where Ridiculous is Ubiquitous, most people’s best attempts at getting ahead are in fact recipes for financial disaster. I get emails from high school and university students telling me, “Dad advised me to finance a reliable NEW car with 4WD, so I can be safe in the winter and spend less on repairs.” Other people rack up $200,000 in student loans for a elite degree with few job prospects, because their parents cautioned “You can’t get a good job without a degree these days.” Still other families stress over how much to spend on olympic-caliber toddler birthday parties, how to afford ivy league preschools and how to fit in with the other high-income families in their private schools.

While any one of these pieces of advice might work fine for a family with infinite money, they have trickled deep down into the middle classes where they become unhelpful for those wanting to truly get ahead.

I just read a book called The Opposite of Spoiled, by Ron Lieber. While the book was thoughtful and thoroughly researched, I was still fascinated by how much things have changed since I was a kid. There were chapters on how to handle the social pressures of a high-income neighborhood. What do you do when the other kids have nicer stuff than your kids, or vice versa? How do you say no to your kids when they want things that you can’t afford for them? How do you handle allowances, jobs, paying for education, mobile phones, cars, and giving to others?

All of these perceived social pressures of the Wealthy New York style of childraising were unfamiliar to me. It was three decades ago in a small town in a different country that I approached my own teenage years, and we followed a much simpler model of family finance back then. Much like the Unfrozen Caveman Lawyer, I found myself wondering “What the hell are these modern people fussing about? Do they really worry about this stuff?”

It seems to me that if we bring the financial values of a small working-class 1980s town forward to today, life gets a lot simpler for kids. And in the long term, richer.

Little Money Mustache and Money

In our household, money is an open subject without any attached baggage or taboos . Our 9-year old knows exactly how money is earned, what happens when you spend it (it’s gone), and what happens if you invest it instead (it works for you, for life).

Since we retired just before he was born, he has grown up with the idea of financial independence – if you own assets like rental houses or shares of businesses, they provide income which means you don’t have to leave home for 9 hours every day and commute to an office unless this is your idea of fun. He sees this by comparing the daily routine of his own parents, to what other parents do each day.

So ever since he has been old enough to have a use for money himself (age six or so), I have tried to give him a chance to learn for himself how it works.

Making Money:

Being a kid is quite a lucrative proposition these days. On top of the free rent, he gets occasional cash gifts from relatives and a salary from me that consists of 10 cents for every mile walked or biked as part of family life. These tend to add up in a mostly-car-free family, as he already has more than 1200 miles on the little 20″ tires of his mountain bike and we wear through quality shoes before growing out of them.

Over the coming years, I’m expecting him to move from these little-kid sources of income into more independent ones. Whether he pursues traditional employment or hardcore full entrepreneurship right off the bat is up to him*.

Some parents like to focus on academics: “Until you graduate, getting good grades is your only job.” But I like to think of a good education as a highly diverse set of experiences. Working and earning your own money at any age – even if it includes stocking shelves and assembling wheelbarrows at a hardware store – is a key part of this. School is just a tiny part of a kid’s education, and not even the most important part. In fact, my most vibrant experiences from high school were side effects of work rather than classes at school.

The Spreadsheet:

This is where things get a bit unconventional. Instead of a physical piggy bank, my boy prefers to keep his money in the Bank of Mr. Money Mustache, a spreadsheet that contains every transaction he makes with money. To make a deposit, he just hands me some cash. To withdraw, he asks me for cash or has me buy something for him online.

But for every dollar that remains in the account, he accrues interest at a 10% annual rate with monthly compounding. I’m excited about the teaching value of this, because it shows him that

his money is finite (not just a limitless pool that you tap by nagging parents to buy you stuff)

keeping the money invested is profitable (his $600 account is now bringing in a very tangible $5 per month in interest)

new windfalls can be added, interest compounds exponentially, and an account like this of sufficient size means lifelong financial freedom

Where the Money Goes:

Right now, he has only a few true consumer loves in his life: PC games, books, NERF guns, and the occasional phone or tablet app. So he has spent over $100 on those things (quite a large percentage of income) in the past year. But in most cases, he has felt the fun value has been worth the spending.

Interestingly enough, he has already started to display a high degree of generosity. When something breaks in the house or another kid doesn’t have enough money to pay for something they want, he immediately offers up a large sum of his own money to cover the shortfall.

What the Parents Cover:

Meanwhile, I still cover the basic infrastructure of educational childhood fun – to build his computer I bought about $500 of parts and we assembled them together into a pretty spiffy gameworthy PC. We build robots with a $400 kit of VEX IQ stuff, and many books, bits of outdoor equipment and trips come for free as part of being in the family. Any organized activities also come from this freebie budget, at least until he reaches his teenage years. But like his Dad, he has shown a strong preference for self-guided activities with friends rather than adult-organized ones so far, and I’m happy to let him continue with this style.

Living By Example, and Giving:

In Ron Lieber’s book, the tricky subject of “why do we have so much, when these other people have so little?” comes up. It’s a good one, because this observation is often the gateway to taking an interest in helping other people. But for me, it would be hard to answer a question like that while living at the pinnacle of American luxury with multiple homes, boats, and jets. Since our annual spending of around $25,000 is lower than average for our own country, and it stays that way even in years when we make many times that amount, I’m hoping the example of “spending does not need to scale with income” will jump to the next generation.

When your own needs are capped, it becomes only logical to find an efficient outlet for the surplus money. So there is an understanding that we operate with an informal, non-billionaire’s version of the “giving pledge“, meaning there will be no large Mustache family inheritance – each generation will be left free to generate its own massive surplus.

Higher Education, Performance, and Stress:

For me, this is where the rubber really meets the road. If you can’t leverage money to live more happily, then what good is it? And yet consider the stunning case study of the children of the nation’s uber-wealthy enclaves like Palo Alto, California. Despite incredible wealth and some of the best educational institutions money can buy, kids there are more stressed, less happy, and more likely to commit suicide than others who live with a fraction of their privilege.

The problem arises when high-achieving parents assume that their kids need to be pushed to achieve more themselves, to beat out the other high achievers and gain access to the most elite schools, in order to compete in this incredibly challenging modern world.

“… when it boils down to it, we are talking about money, and the freedom it can give you. Freedom from worry, and freedom from most forms of bullshit.”

To me, raising kids to feel pressure and fear so they can be COMPETITORS is bullshit. Life is not a competition. It’s a gigantic collaboration, and the world welcomes and rewards people who see it that way.

It may be that most parents of the very-upper-middle class are still operating from a scarcity mindset. If they are addicted to a high consumption lifestyle, earning $600,000 per year but still making car and house payments, they will assume that their children will need to earn and consume just as much in order to be happy. This of course dictates a job in the top fraction of the top percent of the economy, and education with enough prestige to secure such a job.

On the other hand, having crossed the threshold of having more than enough money for a good life almost a decade ago, I cannot even imagine my son not earning a plentiful and permanent surplus very early on in his adult life. Thus, there is no need to fight for traditional elite status. It is much more efficient to rise up to into your own niche without the constant drag of material addiction telling you you aren’t good enough. Paradoxically, this path is rare enough that you might end up earning even more money in the end.

What I Really Want Him to Learn:

All of this kid stuff is just the groundwork for the bigger (and slightly radical) perspective on money that I want to instill over his lifetime: that money is something you can master and control, rather than letting it control you.

Observe the following statements and see if you agree with them. While you can poke holes and find exceptions to each one, the overall philosophy is remarkably true if applied forcefully over a lifetime:

Income is not something that employers or the government ration out to you based on a rigged system. It is something you generate yourself. It is the byproduct of your hard work, combined with learning and mastering the system itself. Even the system itself is subject to your control if you choose.

“Expenses”, “Needs”, and “Cost of Living” are terms that come from a mindset of weakness. Instead, use the words, “My Spending”, and realize it is in your control. By making the right moves and the right arrangements with other people, you could theoretically live for free. You can end up in any job, any city, any country, with any number of additional dependents – all at your own choosing. Even if you don’t exercise every last option in life, knowing that you have complete power over your spending is a key ally for financial freedom.

And finally, money is not the end of the quest of having a good life. While it is currently a major barrier to most people, it is easy to master it early in your life. Then you move on to the real challenges: finding out what life is really about. Hard work, being good to others, a good amount of proper difficulty, and learning as much as you can pack in during your time alive.

This is my experience so far in raising a Junior Mr. Money Mustache. Although I feel the foundation is solid, like everything in life it is an ongoing experiment. I’ll let you know how it turns out.

* My first jobs were paper route, lawn maintenance, and gas pump jockey. Then I moved up to more prestigious and comfortable jobs of working in the town hardware store and eventually cashier in the 24-hour convenience store. Out of this list, I’d only discourage a teenager from pursuing gas station work – avoiding toxic vapors during key periods of brain growth seems wise in retrospect.

A Fun Note: I started a sub-page of this blog called “Should we Meet?” – this is just a place where I keep track of places I’ll be passing through in the near future, just in case you want to come out and meet some real-life Mustachians with me. This page is just my tiny personal version of the Forum’s Meetup Section, where people are hanging out all over the world.

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When I was growing up, I never had an allowance. I would get paid for doing chores. And I would get “bonus money” for getting on the Honor Roll at school. Other than that, my parents were not very good financial teachers (or practitioners). But that one little lesson — that you have to earn what you get and that you are not “automatically” entitled to anything — served me very well.

Having to earn the money I had also made me really appreciate its value. I learned not to waste it and to use it well. I’m sure that’s part of what got me to the earlier retirement I’ve now been enjoying for the last 14 years.

Teaching a kid to be a responsible adult is a big responsibility. Kudos to parents who know how to teach that kid how to learn to be a responsible person, when it comes to dealing with money.

Kudos to MMM for teaching his kid about investing in a way that a young kid can understand. Maybe once the MMM jr gets to be the appropriate age, he can pick up some job for money, and open their first Roth IRA. Imagine the level of compounding they can enjoy for decades, all tax-free.

While I agree that parents owe it to their children to responsibly teach them lessons about money, I stop short of the “allowance” trend that many espouse. Instead, I am a fan of “commission.” You do work, you get paid. You choose not to work, you choose not to get paid.

I believe this methodology instills a proper work ethic. My parents did it with me, and while I have plenty of personal flaws, lack of healthy work ethic will never be one of them.

As an aside, I feel that many parents today can barely keep their households together and manage their OWN money, let alone try to educate their children and prepare them to properly manage finances. It is time for the school system to provide this basic education as a graduation component.

When I grew up in the 1970s, the (Dutch) government paid a monthly amount in child benefits for each kid, and at age sixteen it doubled. Amount was around 45 euros per month, if I remember correctly. So at age sixteen my parents told me that from then on I could continue to live at home and get all benefits of free housing and food and including school books, but everything else would have to come from the monthly government allowance: bike repair, partying, birthday gifts, clothes, etc. It really made it easy for me to quickly realise that each euor (at that time we still had guilders) can only be spent once. I have since heard from a number of other parents who did the same thing. At age 16, getting close to the time you will leave the house and maybe go to university, you become responsible for at least part of your own expenses, what you do with it, save it or spend it, is your business. Oh, and of course there was certainly no temporary loan option or early payment of the allowance.

While I agree that common sense financials should be taught in high schools, and perhaps at all levels of schooling, I’d be hesitant to trust a government run system to teach such concepts. After all, we live in a country controlled by debt. I’d worry that the government’s idea of financial control and freedom would trickle down into the minds of our children, teaching them that consumer debt is the norm and that it builds credit, thus ballooning our financial capacities, and making us somehow more financially responsible. On the other hand, if MMM was hired to form the curriculum for our schools, future generations would certainly be far wiser than current and past generations buried in debt, greed, and lack of self-control.

Me too! I never had an allowance. Whenever I wanted something, my parents would need to think about whether it was necessary and buy it for me if it was. I also got some pocket money for doing chores and getting good grades at school. It wasn’t much, and they didn’t give me money on a regular basis.

My biggest source of income growing up was selling plastic bottles and beer cans haha. I remember accumulating about $100 after years and years of saving @_@.

How does one email you? I’d love to see your implementation. In particular, I’m trying to work out whether MMM is manually putting in an entry each month for the interest, or if it’s possible to automate this process.

I don’t understand the 10/14/13 and 12/28 entries–it seems like when a deposit gets made, the interest is calculated back to the date when the last interest payment was made?

I get how to make a spreadsheet but HOW DO YOU KEEP TRACK of miles walked!? That’s brilliant. Although you know that the day the kid gets a real job he might say- first thing I’m fixing is getting a CAR! I’m joking, but seriously- how do you track miles walked?

Hey Alex! I built a spreadsheet like this and was inspired to make a web-app that has a better interface plus some analytics. Your family will like it better than a spreadsheet – check it out at guardiansavings.org. I just launched it so welcome feedback to make it better! Would appreciate it if you shared the web-app with anyone that asks for the spreadsheet

I think one of the most important things kids can learn about money is that it isn’t love. I spent an hour listening to a friend complain about how greedy her teen daughter is and how she and her husband have bought her everything: car, iphone, designer clothes ad infinitum, and she says she hates them and doesn’t show them any respect, yet she is a bottomless pit of wants. She constantly begs for this or that from Starbucks coffees to expensive electronics. Sure some of this “I hate you” attitude is classic separation preparation on the daughters part, but I also had to point out to my friend that it sounds like she and her husband have been trying to buy their daughter’s love instead of giving her love and teaching her to earn money to buy things that she wants. It’s a good thing that we’ve been friends for over thirty years, because it was a very difficult conversation. I know that my friend really loves her daughter beyond measure and wanted her to have all the luxuries we didn’t have growing up, but she didn’t realize all that we gained by earning what we have on our own.

Bravo to you parents who don’t spoil your children in our wealthy society. There is a new form of “disadvantaged” youth out there who have all the stuff that past generations only dreamed of but a huge burden of entitlement that they will need to shed to make it in the real world, and sadly not a lot of happiness has been bought with all the money thrown at these kids.

My Dad coined a term for this: “Under-deprived”. Now that I have kids, I understand exactly what he meant. I’m trying to find the right balance between generosity towards them, without making them under-deprived.

You could recommend your friends to read: “All joy and no fun”, its a wonderful book portraying all the difficulties of raising modern children and how it all boils down to the weird and recent idea that they must be the center and reason for your life.

My basic philosophy with teaching a kid about money is to set the proper incentives for saving money.
I, too, had a spreadsheet to keep track of our daughter’s money starting when she was about four. We gave her an allowance and she got presents from grandparents, etc. and she could do anything she wanted with it, but it got a whopping 30% effective annual interest rate ( I used a daily rate that was compounded daily to get to the 30% rate) if it was left in the bank. Obviously no one else was a allowed to bank at the Bank of Mom. Later, when the money started adding up, she opened a bank account that was connected to my account. At that point, I changed the interest rate to a still very healthy 2% per month and transferred the interest income on a monthly basis based on the balance in her account. When she was younger, It was exceedingly helpful when she wanted something to ask if she thought it was worth spending her own money. She more often than not declined. Now she’s in college and a good manager of her money.
Another technique that worked well after she graduated from high school was to offer to double the amount she had in her bank account on the day she left for college. She thought twice about spending her earnings from the summer job! And it cost me a bundle, but seemed worth it to try to teach her that not spending has rewards.
Finally, we let her use the car whenever she wants and we pay all expenses, including loan payment, insurance, gas, maintenance, etc. however, she must pay me the IRS rate for all miles driven–about 56 cents per mile! She definitely rides her bike to her summer job lifeguarding!

Thanks for this article, I’m the money manager in my household and have been thinking recently how we go about raising a child who manages money well. Hubby and I weren’t raised with much financial awareness, luckily I seem to have some inbuilt frugalness (or I caught some along the way) although I have a long way to go to get to freedom.
Our 3yo saw a toy catalogue the other day and flicked through it saying “I want that and that and that. I want everything!” so I asked him to go through with a pen and circle what he likes then we can see if he has enough money for something. It seems circling was enough although he is much more excited to find money and put it in his piggy bank.
I very much enjoy reading about how other people start the money conversation with kids, it helps me start a conversation with hubby about how we want to tackle this very important project.

Good stuff here. No kids yet, hope to complete an adoption in the next 12 months or so. What makes me anxious is trying to raise an independent kid in a world where the prevailing mentality is“Until you graduate, getting good grades is your only job.” And the only activities are adult organized.

I really enjoyed reading this blog post. All too often we see children who are just given whatever they want, whenever they want it. My husband was raised on a farm where every man before him has WORKED every day, day in and day out to earn a living. We are doing our best to teach our children that work is a part of life. Sometimes you get paid, but sometimes not. I guess we will find out in the coming years if this method had paid off.

Thank you for writing on the fathering component of money. It takes healthy fathers and mothers to raise healthy sons and daughters. My daughters divide their money into sharing, saving, spending (lesson 1). They’ve learned which accounts take priority (lesson 2). They’ve learned the basic purpose for each account (lesson 3). Now we are going deeper into what we buy with our savings (lesson 4). We are still recording all transactions on graph paper with a pencil. I’m still learning how to father stewardship into my girls and value the MMM community for its lessons influence on me. In case you are wondering, my girls are five and seven and we’ve been doing this for about one year.

At first I tried getting the kids to invest the money (or pretend invest in various sites), but the thought of losing money in the market scared them for now. I took the idea of giving them a flat %10 interest, and it has helped nail in the idea that money can make you more money.

Regarding recording the kid’s money – While a spreadsheet is nice, there are a bunch of sites and apps that do things a lot better. I’m using mykidsbank for my 13 and 11 year old. They each have their own username and password where they can check on their balances and past transactions. The allowance and interest are added automatically. There is a phone app that lets me “withdraw” money from their account anytime I buy something for them or give them cash.

Certainly a lot easier than what I did before – giving them a real savings account at my bank, in to which I would occasionally deposit money.

I don’t have kids yet but I think that this post hits on something that’s truly important. The parent drives the majority of a child’s experience learning about: wealth, gratitude, and notions surrounding money. I grew up in Boulder (I was not rich) but I had a very “rich” life. I rode my bike, I played outside, I breathed in clean air, and I got to ride horses (YMCA) that’s what I remember about childhood. I didn’t get an allowance and I did my chores-and survived the experience. While I do wish I had received the lesson about investing, quite frankly my family didn’t have access to that information or mindset at that time. I’m working on changing that with future generations in my family…beginning with ME! Enjoyed the post.

I recently graduated from college (with about 25k in debt, unfortunately — I wish I would have discovered MMM before I took out those loans!) and I am just now starting to appreciate the way my parents raised me. We basically got showered with gifts on Christmas and our birthdays, but aside from that, my parents never bought us toys or even fancy clothes. We always had to save up our own money. I resented it at the time, especially in high school when my friends would get to go on shopping sprees every weekend, but now I am glad I don’t expect everything to be handed to me.

I got a job directly out of college, and I am already aggressively paying off loans. Once I hit zero net worth, it’s time to start investing! Ultimately, my parents’ ability to not spoil me has really helped my own financial thinking.

Teaching your son about money is possibly one of the most important & lasting legacies a parent can provide. I came out of grad school not knowing anything about stocks, mutual funds or IRAs. While I eventually gained this knowledge on my own, it was thru the school of hard knocks — & the tuition was expensive!!!

In the short period of time that I have been reading your blog I have been mind-shifted to another dimension. I often think of this world like the Matrix with the majority following the herd mentality and with only a few freaks that break out. I have been sharing your website with complete strangers on the phone as I work on reducing expenses with service providers (many of them confused why I would like to unbundle). I also work at a call center as a supervisor and have recommended this blog to both coworkers and customers while casually chatting as I work. If people are at least a little bit flexible in their thinking and able to dream that “seemingly” impossible dream any of them can attain it. LOVE THIS BLOG, LOVE YOUR FAMILY!!

I think the bike miles are the same as walk miles, he gets an amount for every mile he rides and walks, 10cents. It is an incentive to get out and move, but I think he moves around by choice anyway, mum & dad bike or walk every where so he does as well.

My kids did similar, but there was no cash motivation. All except number 4 who wanted and earned himself a Range rover mini SUV on credit. 3 out of 4 wasn’t bad I suppose.

” I cannot even imagine my son not earning a plentiful and permanent surplus very early on in his adult life.”

Unless he gets sick. Imagine it, because it can happen. A long list of genetically-based chronic illnesses, ranging from lupus to schizophrenia, strike right around puberty.

I’m not saying it’s going to happen — it probably won’t. But it has happened to several families I know, including my own. If that happens, your kid has to recognize that:
— Medical spending is NOT under his control.
— The cost of living due to that is an unavoidable quantity which he CANNOT substantially reduce, unless he can get into Canada or England or another “free medical care” country. (You can nibble around the edges but you generally are in no position to research when having medical crises.)
— His medical needs are needs. They are NOT under his control.
— You do NOT have complete power over your spending. Your medical requirements are non-negotiable. You only have power over your spending after your medical requirements are met.
— When you get really severely sick, income is, in fact, something that employers or the government ration out to you based on a rigged system.

This is a warning to you, MMM. It’s actually important to teach your kid right when it comes to this.

Because I know people who were raised in the Mustachian style who did NOT learn these lessons, and when they got hit with chronic illnesses, it messed them up badly psychologically. They tried to not take their expensive medications, to overwork themselves beyond what they could actually do safely given their illness, and other false economies. And they got depressed when they sank further and further. And if they did take their medications and pace themselves properly for their illnesses, they were still depressed because they blamed themselves. When it genuinely wasn’t their fault.

It’s easiest to teach this lesson if your kid manages to get some sort of totally random illness — scarlet fever (I had this!) or something — but if that doesn’t happen, it still has to be explained. Health is a crapshoot; it is only partially under your control.

If you want a psychologically healthy kid who can handle the possible day when he hears, “You have cancer,” or “You have bipolar disorder,” you need to get it clear in his head — and yours — that health is different. As long as you’re living in the US, health can wreck your money and there is damn near nothing you can do about it. And if you’re sick, suddenly it becomes quite difficult to get into foreign countries permanently.

My parents taught me that: save money when it comes to luxuries, but spare no expense when it comes to vital issues of basic health. Because health is what enables you to do everything else. And sometimes your health will be permanently worse than that of the average person, down low enough that you can’t actually budget or stick to your budget… in which case you must prioritize getting your health up to the point where you are actually able to think about money competently again. Even if that requires spending money on health care in large quantities without adding it up.

The people I know who dropped everything and put *all* their time and *all* their money into stabilizing their health when they got a major chronic illness diagnosis — for as long as it took — turned out OK and were able to rebuild. The ones who didn’t do that ended up in a downward spiral from which they never recovered.

In some ways this is an easy lesson to teach. Sickness usually sends a very strong “This needs to be fixed ASAP no matter what” message to one’s body. Harder with some mental illnesses. Unfortunately, society and parents, by sending messages of “you can make all your own choices” to their children, discourage them from listening to their bodies telling them “no, you can’t make that choice, you need to take care of your health first”.

From all the articles about eating right, exercising and general mental and physical wellness philosophizing that MMM writes about I imagine he is teach his son about this. As well, since Mr. and Mrs. MM are hail from Canada I assume Jr. MM qualifies for Cdn citizenship (if he isn’t already a citizen) and therefore for our more, ahem, affordable healthcare. Sure, major health problems can screw up your life no matter where you live but this blog gives me the idea that Jr. MM is being taught handle whatever life throws at him.

At 16 I began having seizures, considered both a medical condition and a mental illness. The day I was supposed to start driver’s ed I had an EEG which confirmed my epilepsy and meant I could not drive until I was 1-year seizure free. I was fortunate my parents did have medical insurance to pay for testing, expensive but ineffective medications, and eventually a co-pay on a surgery 4 years later that finally ended my seizures.

I disagree from experience that a mental illness or serious medical condition can shut you down financially, perhaps cancer excluded. My disability even forced me to learn frugality, self-reliance, and entrepreneurship.

Reason 1: Transportation. Because I could not drive due to epilepsy laws I rode my bike everywhere, quite a feat in a huge city of Albuquerque. At least the weather is usually nice for biking there. I took the bus or carpooled when the weather was bad or it was dark. Not having a car saved me over $1,000 a year in gas, insurance, registration, maintenance, and loans. When I eventually could drive I bought a $500 clunker to take me places at night or to the transit center to catch the bus to college. I found an apartment across the street from my second real job and walked there for 3 years. Even as a 30-something adults are shocked when they see me walking or riding my bike to church or work or to the store for groceries. Sometimes car-dependent friends stop to offer me a ride and ask if my car is broken. I tell them it is good for my body and mind to walk or bike. Now with a son I pull a 2-kid carrier behind my bike. Makes it easier to carry home groceries in the extra-kid space than a stroller.

Reason 2: My medical condition taught me the value of being my own boss. No one wanted to hire someone likely to “zone out” in a partial seizure for 5+ minutes at a time, so instead of a regular job at a fast food joint like many of my friends I opened my own business selling chips, Capri Sun, and candy bars out of my backpack during passing periods and made $10-$20 profit a day. After college I have made extra or my primary income as a nanny, tutoring, teaching cello and violin lessons, renting out an extra bedroom, and even had a wedding cake business until my son was born. If you are willing to work, have a library card for free how-to books, and access to you-tube tutorials you can learn to do new skills to bring in extra income regardless your mental health.

Reason 3: Scholarships abound for students with medical conditions and mental health issues. My 4 years of college were entirely paid for thanks to 1) I worked my hardest to get only As and Bs in high school and college while having 2-4 seizures a week, and 2) I was an active participant in 5 days a week of extracurriculars, which I had time to do thanks to not having a traditional teen job.

Reason 4: I choose a career where I knew I would have health insurance. Many of my friends chose Art, history, art history, music, liberal arts, or other degrees which have a very low likelihood of employer-provided health insurance, unlike accounting, education, engineering, medicine, or business. Continuous coverage laws from my parent’s insurance to my own were a blessing. Obamacare is/was in general a disaster but the best part of it was not denying coverage to someone with a pre-existing condition if someone with a medical condition who was not as fortunate.

I have never received a dime of disability money from the government, and feel what I took from my medical condition is when life gives you lemons, open a lemonade stand!

My oldest child is about to turn 21. As a teen, he was really focused on earning and saving money in order to buy the luxury items he wanted. [iPod, computer, camera, iPhone – his first car, etc]. We were always so proud of him for saving for the large items he wanted, since we were not going to buy them for him. Unfortunately, this habit of save-to-spend may have developed an unhealthy attitude toward money. He still works hard. But, instead of saving and growing wealth, he still “saves up” to buy extravagances: designer clothes, travel, restaurant meals, concert tickets, and so on. He is still on a save-to-spend cycle.

Here’s my question. I really want to give him a meaningful financial gift for his 21st birthday. I don’t, however, want to just hand him a significant sum of cash. We’d like to set up an investment vehicle for him, to encourage long term savings as he moves through his twenties. Is there a way we can invest a few hundred dollars as a gift for him? What vehicle do you recommend for this small scale investment?

Hey Mary – You may want to be careful about this….maybe set a promise to him that you will match up to $1k for every dollar that he puts into the Betterment account. Maybe do it as a long term incentive….for the next ten years until you are 30 we will match up to $1k per year ….or better yet, make it a 50% match so for every 4 dollars he saves, you will add 1 (automatic 20% return for him!!!).

I’ve read articles that when children know they have a safety net, they will spend more of there income. So if you give him the investment now, he might figure, sheesh, I now can feel even less guilty about my pleasures. So unfortunately your gift may backfire and not incentivize him to save and invest.

Is it too much to give him a tantalizingly large gift (whatever that is to a 21 year old) but on the condition that he read a book (or two) of your choosing (Your Money or Your Life, The Richest Man in Babylon, The Millionaire Next Door, etc)? Then make him fill in the answer to the equation – (Savings) * X = (Spending) and explain what it means. I don’t know, a one time gift based on the premise that he has now been “led to the water” doesn’t seem like a bad investment.

I’ve ‘copied’ your approach with my own son (online mom bank) after his frustration with such little interest earned in their traditional bank accounts, with super good results! He is excited to watch his money grow!

My dilemma with my son: he wants for nothing. He does chores around the house *mostly* without complaint. I can’t motivate him to work for extra money…he always says he has enough…mostly birthday and holiday money from grandparents, a couple of cash prizes from entering drawing contests. I’m so glad he isn’t a spender and always wanting ‘things’ but aside from making him work for his food and clothes (probably not appropriate for a 10 year old), I’m really struggling to motivate this kid!

Well, the point of earning is to have “enough”. Kudos to your child for feeling he has that. As he grows in age, his reality will change and his life will take on new dimensions. At that point he can apply everything you taught him until he has enough for his adult stage of life.

This is why I can’t agree with the concept of paying for chores as allowance — IMO there are certain amount of chores everybody in the family has to do just because of being part of the family. Chores are for helping the family unit (albeit sometimes paying it forward for the future family unit of the grown up kids) — not because the child happens to want extra money that day. There is plenty of work in life that you just do because it needs to be done and not because anybody pays you for it. OTOH I have no trouble with paying for something that is ‘above and beyond’, like washing the car… but so far that happens only when they want to save up for some big ticket item — so I still don’t see it as teaching good money mgmt.

As a late 20 something who has every intention of getting married and reproducing in the next decade or so, allowance has been something that I’ve been thinking a lot about. There seem to be plenty of different approaches. Growing up I started getting a couple dollars when I was five or six on a weekly basis, increasing incrementally as I got older. After reading this, I think this is the way I’m going to go with any kids I have. One major advantage I can see to this system over just about any other is that allowance works exactly like it does in the adult world, bank accounts and interest included.

An acquaintance’s son applied to and was accepted at all three state universities. He and his father calculated the average cost of attending four years at any of them, and the father then wrote a check for that amount for the son to deposit. He invested the money, chose the one with the highest-ranked Business School, majored in Business, worked a little bit in the summer while taking summer classes, and graduated in three years with a savings of almost 50% of his original capital funding. While the family was not wealthy, their forethought effectively removed the son from getting involved in education loans and forced him from the start to learn how to protect and grow his own tuition generator.

“Into the hands of every individual is given a marvelous power for good or evil- the silent, unconscious, unseen influence of his life. This is simply the constant radiation of what man really is, not what he pretends to be.”- William George Jordan

I think that the best a parent can do is to set the example that they would like their children to follow. And, honestly, if they don’t follow when the example has been set that is their choice and their opportunity to learn a different way. I think when parents lose respect is when they do the old school “do as I say and not as I do” type of parenting. Kids see through that and realize their parents are full of shit. What we do when people aren’t watching us reflects our true character.

The skills of earning, managing your spending and saving are as practical as ever. However, I have lost some faith in how best to manage the money that I do save. The stock market seems to be subject to some evil forces and even the housing and mortgage markets are manipulated by Washington and Wall St. I assumed a home was a relatively safe place to save money and build long term wealth, but even that is no longer an obvious choice.

Now it’s back to basics. Simpler living and a sense of modesty about living and finances.

I’ve spent the last two nights re-reading through some of my favourite posts – and must have missed this one the first time.

We use a similar technique with our sons (8 & 10), though I use a couple of YNAB “virtual accounts” to do the tracking – I might pop it into a spreadsheet for them to. They love it, they feel connected to it and are developing their own takes on money, debt, work and living in luxurious frugality. My eldest has my tendancy to outrage (particularly toward anything he perceives as an injustice) – he saw an ad for one of those horrendous pay day lenders.. his fists balled, his eyes widened and he let “them” have it… then explained to his little brother in an clear and concise manner what he was so pissed about. The kid cracks me up.

I’m a recovering debt junkie – I had credit cards up the you yang, a business going backwards and would buy shit in a futile attempt to feel better, to feel in control. I’d started on the road to recovery before I found MMM, but your blog has inspired some big changes to our life and, as a result, we the changes in our wellbeing are mindblowing – financial, sure, but more importantly we are no longer remotely stressed, not anxious about money or our future, find joy sweeping up on us at regular – and sometimes unexpected – intervals and are looking forward to an active retirement 2 years from now at the ages of 42.We’ve reassessed what is really important to us and it’s simple as fuck – living a pretty relaxed lifestyle, with no fear, enjoying each other and our children, learning new skills, feeling connected and like we have the time, energy and health to explore this amazing world.

I guess I’m feeling all loved up after re-reading and re-visiting and getting a renewed fire in my belly – but I just wanted to tell you, thank you. Like really. Thank you. You’ve significantly contributed to a realisation that has changed and will continue to change our lives, and that of our children.

You’ve even instigated some soul searching regarding my fear of getting on a bike. I’ve made every bloody excuse under the sun over the past couple of years – a case of Excusitis like you wouldn’t believe. But as my fear in other areas has disapated, as my health has improved – I believe due to better food, moving more, more music, more sleep, less stress and truly feeling in control, despite my Dr assuring me I wont be free of the autoimmune condition I have – I feel like it’s a final hurdle I can conquer… and I bought a bike. Yep. I’ve been a holdout on the bike…. but I’m so excited to pick it up! The kids are beside themselves!

This is how I discovered the MMM blog… I did a search for “how do I teach my kid about money” and after reading 3-4 lame articles which didn’t resonate with me at all, I read this very thoughtful and insightful piece and soon thereafter tackled the Maximum Mustache and read through everything.

I re-read the article today for some reason (probably because I need to work on my money teaching skills with the little one) and what jumped out at me this time is that it’s making me remember that if I stay focused and continue saving and investing, that, I too, will be leading this financially independent lifestyle very soon! It made me excited to stay the course and hope to get to the end sooner than my target date.

MMM thanks for the post. It really gave me and my hubby some food for thoughts. Not sure if you are still answering comments for a 1 year old post, but I thought we should still give it a shot.

Our question is, how can we strike a balance between living comfortably and still be able to teach our kids the value of money and a good work ethic? It is possible to raise well balanced kids even when living with access that we can comfortably afford?

We are starting a family, and teaching our future kids about money is a huge concern. We’ve got out of the rat race a few years ago and have done really well in building our own businesses. We are on the verge of retirement with a sizable nest egg.

We’ve worked hard, made good finance choices and invested wisely, so we live a very comfortable lifestyle that can appear lavish to some people.

Here within lies the problem. First, our kids will never see the decades of hard work and the effort it took to “earn” this lifestyle; Second, our comfortable lifestyle may appear “easy” to our kids and they might think it is normal and eventually feel entitle to it.

We’ve made countless personal sacrifices to earn our financial freedom. We hope we can enjoy of fruits of our labor, but not in the expense of our kids’ future well-being. If anyone have any insight on this issue, our ears are open!

I can’t tell you how to live, but my own situation is identical these days. Our solution is to live at or below our country’s middle-class level of spending, so that the life he experiences is the same (already plenty abundant) level that the typical lucky American kid would see. This way, he won’t grow up thinking that a “top 1%” lifestyle is the norm.

If this leaves us spending only 5% of our income on living, so be it – that just leaves 95% to give away, with no sacrifice in happiness!

I think this is a great topic and one of many not taught in school. However, the world is harsh and 10% for the next ten years is not teaching anyone anything but unrealistic finance. The lesson should be risk vs. reward. What is risk in this situation. For a 10% yield you should be looking at junk bonds.

Teach about the reason you can’t get above a 1% yield is because if the fed actually raised rates nobody could pay the money back – default city baby. A better idea is to talk about what is money and how is it created and how does inflation destroy it. I think we could be in for a couple of lean decades ala japan since the 1980’s so maybe you should use a negative interest rate or give a lesson on helicopter money.

I’m teaching my kids about Roubini and black swans, that this time it’s not different, and the immortal words of Herbert Stein ‘If something can’t go on forever, it won’t’.

But good post and one final thought, with all that money rolling in MMM, buy your kid some Magic the Gathering cards (per the New Yorker), that’s what money’s for. Right?

Wow, your corrections are fantastic. I’m really sorry the author of the New Yorker article misquoted you into insulting your friends. If I ever got to have late morning lagers with you, I’d make sure everybody knew it was both of us partaking!

I barely know you in person, and I’ve just stumbled onto you blog. It’s been nothing but fascinating and inspiring!
One read of that NY article and I had my hackles up – I was really irritated that the author got it so wrong! He missed the whole bloody point and was downright nasty at some points.

Making money as a kid in other countries isn’t quite as easy. Germany for instance has very strict laws regarding child labor. I remember wanting to work summers at age 14 and not being allowed. You are only allowed to do very few jobs (a paper route) and only for a very limited amount of hours, so the few jobs that WERE available (like working at a brewery once you’re 16) were highly coveted and almost impossible to get.
Growing up in a German city also eliminated jobs like lawn mowing. And the very low birthrate in Germany makes babysitting not that abundant. I guess here young entrepreneurship could have kicked in by figuring out services to offer neighbors, but even they only need their windows washed once a year. My parents did make us earn our allowance by doing our chores (50 Pfennigs for dusting, 1 Mark to bring out the trash -this was before the Euro), but that was about it. :)

Oh, wait, totally forgot! The one thing children ARE allowed to do in Germany is sell stuff at fleamarkets, and I recall our dad dropping us off there a lot of times, but it was cold and I hated having to barter with Turkish antique dealers who would take advantage of kids having no sense and ending after a long day with just a few coins- I was not a Mustachian kid, clearly, but I disliked the experience so much that it’s blocked in my memory and I dislike selling at them to this day, but maybe I’ll give it a go now and try and get over it. (I do buy all my clothes at the fleamarkets though)

I love this article. We struggle a bit with living a truly Mustachian lifestyle, but we are debt free, have good savings cushions, max out retirement, and have healthy investments. For the new kiddo, we have been discussing how to raise him to have these hard-won money lessons, and gratitude!, without it being quite so painful as it was for us.

Compound interest is the most powerful concept, but SO abstract! One idea we have had, for when he’s too young for a spreadsheet (not concrete enough), is to have a piggy bank with categories (save, spend, invest, help others) and deposit everything in pennies, then give him a generous interest rate (10% – 30%?) in pennies, then compound weekly or monthly (whatever we think we’ll actually remember).

We currently have three jars for each kid, labelled Saving, Giving and Spending. The saving and giving jar do what we have wanted them to do – and we encourage the kids to think carefully about what they’re saving for, wait for a certain time before spending anything from their savings jars, and even make a written note to keep on track. We ask them to put a minimum in each of these jars, so they do grow at a regular rate. However, I see issues with the spending jar. It has no minimum limit, and all I see happening sometimes is that the kids are shovelling money into their spending jars, having only committed the minimum to the others, and are using the spending money to purchase crap. I think we will be making another adjustment to our system in the coming days/weeks!!!

I walked in the house yesterday and after a few minutes of listening to the ongoing program I said to myself “Brent’s guest must be MMM”.

I think we have raised 2 MMs but I’m not sure how much anything we did had anything to do with it. My super frugal and financially savy parents raised 11 children and today our habits range from “in debt up to the eyeballs” to “super savers”. I remember the lessons about “paying yourself first” and “the Rule of 72” but I can’t say that all of my siblings applied these lessons equally.

But somehow or other the spouse and I have raised 2 sons who do not have the spend and spend habits of their 26 cousins and, in case anything we did played a role, I’ll share what we did.

Our sons couldn’t help but notice that we didn’t spend money like most of their friends’ parents did, especially during the 7 years we had a mortgage. They knew that we didn’t eat own, have cable TV or game consoles and that we kept our cars for about 10 years. But they also noticed that once we were debt free we were willing to spend for experiences, like international travel, and that our savings meant that we didn’t worry about financial emergencies.

We never tied allowance to household chores because household chores are just things we all have to do. When they started middle school we gave them a monthly allowance that would cover buying milk every day, lunch once a week and the occasional birthday party gift. They knew that they could spend it however they wanted but if they ran out before the end of the month it wouldn’t be replaced. They quickly figured out that if they made a lunch they didn’t need to buy a lunch and at school they switched from drinking milk to water. We intended to increase their allowance when they started showing an interest in choosing their own clothes etc. but since they were content to wear the generic items we bought them that never happened.

When we discovered that there were students in their school who were only able to afford to go on school trips if they fund raised the money themselves we decided that we would not pay for our sons’ school trips. One son got very choosy about which trips he participated in. The other became very good at baking for bake sales so that he could go on every trip.

Our sons knew that if they bought a car they would have to pay for the car, the gas, the registration, the insurance and the maintenance. They rode the school bus right up until their last day of high school.

Because they didn’t need money to furnish the average teenage lifestyle they had no interest in earning money when they were in high school. Probably because I had worked from the first day I could legally do so, I worried that they wouldn’t have a work ethic. I needn’t have worried. Perhaps because of their abhorrence for debt, once they started university they always had good paying summer and co-op worked term jobs.

We had long wrestled with how much financial support we would give our sons when they went to university. We ended up providing about 30% their budget, as calculated by Canada student loan, which was about 5 times what CSL would have required of us. (I would recommend that all parents of children going to post secondary require their children to apply for loans. Even if they decide to forgo the loans for many it will be a huge eye opener to discover how little their parents are expected to contribute.) Our 30% came from the principal and interest on the high interest account where the “family allowance” cheques were deposited and the interest on the education savings plans. (RESPs) The growth of those accounts provided a bit of a lesson on compound interest.

Our sons both paid off their student loans before they earned their undergrad degrees. Both could have repaid our contribution within a year of graduation. One has Silicon Valley engineering job . The other is a PhD student who can cover all of his living and travel expense with 40% of his tax free scholarships. The remaining 60% is invested in the diversified portfolio of low cost index funds he has in his TFSA. (He’ll have it maxed out by September.) He is aware that if he continues with this savings rate he could be FI in less than 20 years.

But I’m well aware that if we had had more children at least one might have been a “black sheep” who was willing to go into debt to try to live like a Kardashian so I do advise new parents to try to limit the amount of “you need to buy more” media that comes into the house.

Actually think the most important thing you can do is provide a positive financial model to your children. If you say no to your child but can’t say no to yourself, your children will not receive the lesson you intend.

“To me, raising kids to feel pressure and fear so they can be COMPETITORS is bullshit. Life is not a competition. It’s a gigantic collaboration, and the world welcomes and rewards people who see it that way.”

Mr. Money Mustache, you just showed your Canadianness again. :) Surely by now you realize that competition is what Americans *do*!

My paper routes were the best jobs I’ve ever had. I wish I could think of something that would serve as well in the modern world for my kids. Nowadays all the local newspapers (which are going out of business anyway) pay adults to deliver by motor vehicle. Probably a liability issue. Damned lawyers.

I’ve started sharing your wisdom with my 8 year old son. 50% of all money he receives, either as gifts or pay for doing work around the house, goes into his bank account, and hopefully I can convince him to maintain this savings %. He’s our only child and it would be so easy to buy him whatever he wants, when he wants it, but we try to be extra cautious of that, so he’s used to hearing “no”, or “do you have the money for it?”. Usually he realizes he’d rather not part with the money. Thank you for sharing your wisdom with all of us!

I love this advice. What you’re doing with your son is incredible. I will never understand why money concepts like this are not taught in schools. We deal with money on a daily basis. It’s currency. And like a current it travels through all facets of our lives. Yet, we continue to put off really grasping it until we’re trapped under a pile of debt and suffocating from our stuff. Even then, how far do we really get in our knowledge only to fall into the same debt trap?

I’ll be checking out more articles as I want to learn more about your story and message. In the meantime, I’ll share this on Twitter and Facebook.

I’m a little late to the MMM game, and have been adjusting habits bit by bit to get better value out of everything. Just came across this blog post. I’m just about to have a kid, so these are things I am starting to think about. But I was wondering, when does Jr MMM make the jump to “actual” investing? Do you have an age in mind? Or is that on him?

One question for you: do you think it is appropriate to be open about your net worth to your children? If so, at what age? I know living by example is important and part of that is being as transparent as possible. Let me know your thoughts.

Sir Mustache, the real question, that you may have answered in another post, that 21-year-old me is contemplating is to have a kid at all. With overpopulation potentially plaguing the world, even raising one kid seems like a disservice to society.

Hey Sam, it’s a tricky question but if you really want kid(s) when the time comes (still a decade out for you if you do it the smart way ;-)) it could still make sense to go for it. Plus, it’s not so much an overpopulation problem as it is overconsumption-per-capita.

If every reproducing couple were to have only 1-2 kids roughly starting at age 30 (even if a minority chose to have more), and those of us in the rich world give even a tiny shit about our resource consumption, it will lead to an easily sustainable human population.

What an incredible feeling it is the have the very being who has occupied my thoughts – almost monopolized them (kidding) – for the past couple of weeks to have a one on one interaction with me. I can only express the deepest gratitude for all the value you have provided me with your articles (saw your world domination talk too) and excitement all the value in the future.

As I attempt to repay just a fraction of what you’ve given me, I just finished University in Canada and tracked every dollar I spent over the past four years, I thought, whether you share it or not, it could at least be interesting to you to see a real-life exhaustive case study of a University student today. Keep in mind, I have only recently converted to Mustacianism, enjoying endless fancy experiences during my time at University, captured in my spreadsheets.

If you want to see them, I can send them to you via e mail, just shoot me a note at the e mail provided in my comment form.

Much of the values you teach remind me of the way my great grandparents lived. In the 20+ years I knew them, I saw my great grandma at the local grocery store once. She was purchasing flour for her Christmas baking. She gardened into her 90s. I’m told they worked traditional jobs at one point, but not in my lifetime. They retired very early by living like they were poor. Great grandma had been a school teacher until she had children. Great grandpa had worked in some sort of factory back in the Great Depression. He earned a decent wage in the Great Depression. He bought every house he could during that time and charged the tenants fair rent. It kept them from eviction, as he undercut the bank, and made him wealthy. He sold the houses back at fair market value after the Depression. After the Great Depression he did not work a 9-5, rather he auctionerred. He gardened and pittled. I hope someday to live like my great grandparents. I have taught my husband dept is bad, he came from a broke 6 figure income family. Which is now debt free. I have taught him how to budget. It is as if we now have the knowledge, and aside from Murphy visiting us we continue on our strict budget. (Unexpected hospital bills, plumbing repairs, etc.) We have 2 children, my husband stays home, I work. We hope to eventually work together as a family and be financially free. We are debt free and saving for a house. We are currently visiting all the state parks within driving distance for inexpensive fun. I read your blogs most evenings, they are encouraging. Thank you.

I’ve done something similar by using the Rooster money app to educate the kids. My daughter just won’t part with her crisp $100 Bill thou, even when I’ve explained the compounding interest effect. I guess she just loves having that piece of paper. Not going to push it at her age, but the app is doing it’s job related to chores and shared family expenses

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